FARMERS STRIKES BACK

Farmers Insurance Company filed suit against Texas Insurance Commissioner Jose Montemayor and the Texas Department of Insurance (TDI) seeking to reverse an emergency cease and desist order issued against the company. Among other things, the C&D order prevents Farmers operating companies, Farmers Insurance Exchange and Fire Insurance Exchange, from initiating rate increases in the homeowners market, in order to stem what the department says are illegal and unfair pricing practices. According to the lawsuit, the plaintiffs want to nullify the C&D order, as well as related disciplinary actions issued by the defendants. The company is also seeking a permanent injunction against Montemayor and TDI to prevent them from affecting the exchanges' ability to conduct business. Farmers asserts that the C&D order and disciplinary action exceed the authority vested in Montemayor and TDI by the Texas Insurance Code. The lawsuit also contends that the state insurance code exempts insurance exchanges from rate regulation, and that the commissioner has no authority to impose such regulations on the plaintiffs. The Office of the Attorney General filed a lawsuit against Farmers in early August charging it with violating state law by using illegal business practices.

TDI TARGETS COVERAGE DENIALS

TDI has proposed a rule that would limit insurer's ability to deny homeowners insurance coverage based solely on a history of water damage claims. Insurance Commissioner Jose Montemayor previewed the new rule to state legislators at a hearing before the Senate Insurance Committee a few days before the proposal was filed. According to TDI, Proposed Subchapter J. Prohibited Trade Practices 28 TAC §21.1007, is designed to eliminate unfair competition and unfair discrimination and to promote the availability and affordability of residential property insurance. It prohibits an insurer from using water damage claim history as an underwriting guideline or to rate a new policy if an inspection has not been conducted by the insurer to

determine the condition of the property. TDI asserted that some insurance companies are rating and declining to write residential property insurance policies based on the existence of a prior water damage claims in order to offset losses resulting from and to avoid future claims for mold damage. The department contended that whether or not prior water damage has been repaired can only be determined by an inspection of the property. A public hearing on the

rule is scheduled for October 22. The Alliance of American Insurers was one of the first insurance industry groups to oppose the proposed rule. An Alliance asserted the proposal would put undue requirements on the insurance company and maintained that insurance companies must be able to underwrite risks using the characteristics they believe are relevant. It noted also that the free market, not the government, should control "what coverage should be offered and at what price."

C&D ORDER ISSUED IN ARKANSAS

Arkansas State Insurance Commissioner Mike Pickens issued a Cease and Desist Order to AMS Staff Leasing NA Inc., a company that the

insurance department alleges had been illegally offering workers' compensation insurance in the state. The department also charged AMS Staff Leasing, based in Dallas, and its president Charles D. Wood, Jr. with operating as an employee leasing firm in Arkansas without first obtaining the appropriate license. It accused the company of falsely claiming it secured workers' compensation insurance and then offering workers' comp coverage to Arkansas employers. The order requires AMS and its president to immediately stop marketing unregistered, illegal or unlicensed plans in the state. AMS was directed to notify its clients, and all of its affiliates of the order to cease and desist writing any business in Arkansas. The insurance department is also making efforts to notify the company's clients that they do not have insurance coverage.

MOLD REMEDIATOR'S ASSETS FROZEN

Texas Attorney General John Cornyn filed suit in Houston against Mold Restoration Inc., a mold remediation company, to stop alleged

practices that have left many homeowners with unfinished restoration and increased damage to their houses. Although MRI was hired to provide services meant to correct severe household mold problems, the AG's office contends that many affected Houston-area

residents have reported problems afterwards that are worse than those the company promised to clean up. Based on a lawsuit filed by Cornyn's office, Harris County District Court Judge John Donovan granted a temporary restraining order freezing assets of MRI's owners Richard L. and Robert M. Steffan. The order also restricts the use of MRI's corporate funds. Cornyn alleges the company, with offices in Houston and Cedar Park near Austin, made false promises and engaged in fraudulent restoration work that caused structural harm to many residences. Their activities caused financial hardship to homeowners and to insurance companies that pay out large sums of money on these claims, the suit alleges. The AG also claims that instead of using insurance proceeds to rid homes of mold, the two owners lavishly spent consumers' insurance funds for their personal uses. The alleged extravagances included furnishings for a home in Lakeway on Lake Travis near Austin, and repairs and provisions for

two luxury boats, plus expenses related to travel, boat parties, club memberships, liquor, speeding tickets, medical costs, trailer storage, skiing supplies and more. The asset freeze prohibits MRI and the Steffans from removing, transferring or concealing stocks, bonds, insurance policies, safe deposit boxes or trust agreements; or selling

real estate assets and recreational or other personal vehicles without prior court approval.

PROG. ADMIN. SUMMIT EXPANDS

Ten insurance companies specializing in program business have signed on to participate in Target Markets Program Administrators

Association's Second Annual Summit meeting to be held in Tempe, Ariz. October 21-24. Included are: The St. Paul Companies, Gulf Insurance Group, AIG Programs Division, Kempes, Clarendon, Markel, XL Programs, Meadowbrook Insurance Group, Royal & SunAlliance Programs and Old United Casualty. In addition, reinsurance intermediaries Benfield Blanch will have a presence there. Target Markets executive director Ray Scotto said the variety of companies available at the meeting, some of which are active across the U.S.,

creates an ideal networking opportunity for experienced program administrators who control or underwrite programs or surplus lines.

UNDERWRITING SECRETS REVEALED

The National Association of Insurance Women-San Antonio and the Independent Insurance Agents of San Antonio are jointly sponsoring "Underwriting for Non-Underwriters," a seminar to be held October 2 in San Antonio. The seminar will take place at the Olympia Hills Golf & Conference Center and will provide six hours of continuing

education credit. The goal is to provide basic underwriting philosophy so that non-underwriters have a better understanding of the principles and practices of underwriting. The course aims to help participants: Understand the underwriting process and the reasons for each step; Understand how the reinsurance process affects

underwriting capacity; Be able to negotiate price or coverage more skillfully with underwriters; and Be able to identify the questions normally asked by underwriters and claims examiners.